Brexit: Now What? The UK's New Energy Outlook

Europe’s biggest tennis tournament is finally over- and we don’t mean Wimbledon. The United Kingdom has voted to make its grand ‘Brexit,’ and while the decision to go is final, much of the conditions in regards to economics, legislation and energy are still up in the air. While we predicted that losing the UK would be a major hindrance for the European Union’s carbon reduction initiatives, it’s now time to look inwards. Now that the UK is newly single, how will their power generation market fare with the break up?

The crash of the pound is bad news for flow of capital and investment funds. Rising overhead costs have squashed the profitability of new assets, turning investors way off. This is comes at a bad time, as the UK badly needs to upgrade its ageing infrastructure to avoid power blackouts. Foreign investment has been crucial in raising capital for new power generation infrastructure, but this could now change. Without incentives offered by EU-implemented energy directives (such as Renewable Energy, Energy Efficiency, etc.), which the UK are no longer bound to uphold, investors are likely to put their money elsewhere. But without new power infrastructure, the demand for traditional energy sources is expected to rise, drastically increasing the price of energy for consumers. This is good news for coal, but bad news for renewables.

While Great Britain has it’s own ambitious climate change bill in place, initiatives could easily change without pressures from the EU to keep up with carbon reduction goals (which the UK is apparently on track to fail anyways). The pre-Brexit government was not exactly renewable-friendly in the first place either. While the UK’s Energy Secretary, Amber Rudd, (anti-leave) said that the British government would “continue to invest in clean energy” post-Brexit, she also mentioned that it could not support renewable energy with heavy subsidies, saying that it “should be able to stand on their own two feet.” Whatever subsidies that were in place pre-Brexit had already been slashed, without appropriate consultation from the various stakeholders.

The implementation of Electricity Market Reform (EMR) in the last two years has also shown the government is not interested in renewable power development. Rather, only a fraction of funding from CfD auctions has been put towards renewables. Support is however being allocated towards nuclear power. Électricité de France’s £18bn investment in Hinkley Point is still on, despite French union views that the now nearly bankrupt EDF should look after their own house firs, rather than invest money they do not have in a UK project. The Hinkley Point project largely depends on a subsidy agreed to with the UK government, which would pay EDF £92.50 for every megawatt-hour of electricity it produces for 35 years, almost three times the current price. Which means, UK consumers will be paying triple the current wholesale power price for that electricity.

Internal strife within the UK is already stirring. New elections in a post-Brexit government could result in more than just the replacement of Rudd. The possibility of of a hung parliament could create a limbo of politics and business, which could dangerously divide Great Britain. The butterfly effect we so predicted has already begun, as Scotland looks to rejoin the EU. The UK member nation voted in favour of the UK staying in the EU by 62 per cent to 38 per cent. The news comes as Scottish First Minister Nicola Sturgeon said that a second independence referendum looks “highly likely” after the UK voted to leave the EU. Scotland leads the UK in wind power generation, so losing them would be a major loss in renewable power generation capacity. Solar however is expected to receive a boost, as the Brexit will bring the removal of duties to solar PV panels imported from China. However, this is only a specific sector in the whole of the UK energy picture. In short, the UK will endure at least 2 years of uncertainty, and another 5 years of wrangling with the EU whilst the extraction process takes place.

Post COP21, energy markets in the rest of Europe are working together to achieve an internal market, by building electricity interconnectors, decentralising their systems and relying on each other to achieve higher penetration of renewable energies and a stable grid. A single UK would be going against this, and their perpetuation of nuclear only further supports the centralised energy system of the past. Going alone would mean that the UK’s energy sector will be limited to the subsidies that allow it to keep its fossil-fuel fleet afloat, and will be excluded from the energy co-operation that takes shape in the EU. Much like Norway who, as a member state of the European Economic Area (EEA), the UK could have to adopt European rules and legislation without having any influence on their development.

However, assumptions that the UK is entirely giving up their carbon reduction efforts are not entirely true. There could be a silver lining, as a new, independent government now has the flexibility to develop their own legislation. With a new Prime Minister in office, a reshuffled cabinet could introduce some fresh blood, hopefully with a more renewable outlook. Freed from inefficient red tape of EU bureaucracy, companies will be able to innovate faster as well, if they can still afford to. While the independent UK maintains that it is still a great place to do business, let us hope that it will continue to uphold it’s support in the fight against global warming.